CBSE Sample Papers for Class 12 Economics Paper 4

CBSE Sample Papers for Class 12 Economics Paper 4 are part of CBSE Sample Papers for Class 12 Economics Here we have given CBSE Sample Papers for Class 12 Economics Paper 4.

CBSE Sample Papers for Class 12 Economics Paper 4

Students who are going to appear for CBSE Class 12 Examinations are advised to practice the CBSE sample papers given here which is designed as per the latest Syllabus and marking scheme, as prescribed by the CBSE, is given here. Paper 4 of Solved CBSE Sample Papers for Class 12 Economics is given below with free PDF download solutions.

Time Allowed : 3 Hours
Maximum Marks : 80

General Instructions

(i) All questions in both sections are compulsory.
(ii) Question Nos.1 – 4 and 13 – 16 are very short answer questions carrying 1 mark each. They are required to be answered in one sentence each.
(iii) Question Nos. 5 – 6 and 17 – 18 are short answer questions carrying 3 marks each. Answers to them should not exceed 60 words each.
(iv) Question Nos. 7 – 9 and 19 – 21 are also short answer questions carrying 4 marks each. Answers to them should normally not exceed 70 words each.
(v) Question Nos. 10 – 12 and 22 – 24 are long answer questions carrying 6 marks each. Answers to them should normally not exceed 100 words each.
(vi) Answers should be brief and to the point and the above word limits should be adhered to as far as possible.

Questions

Section A: Microeconomics

Question 1:
When is a good considered a normal good ?

Question 2:
Let TR be total revenue, Q be quantity of output and ‘rr the number of units, then marginal revenue equals (Choose the correct alternative) :
(a) TR_n – TR_n-1 only
(b) \(\frac { Change in TR }{ Change in Q }\) Only
(c) Both (a) and (b)
(d) None of the above

Question 3:
Define short-run production function.

Question 4:
There are a large number of buyers and sellers in (Choose the correct alternative):
(a) Perfect competition only.
(b) Monopolistic competition only.
(c) Both (a) and (b).
(d) Oligopoly.

Question 5:
Explain any three factors that affect the supply of a commodity.

Question 6:
Explain the feature of “few firms” and its implications in an oligopoly market.
OR
What is meant by prices being rigid ? How can oligopoly behaviour lead to such an outcome ?

Question 7:
Draw average revenue and marginal revenue curves in a single diagram of a firm which can sell more units of a good only by lowering the price of that good. Explain.

Question 8:
Identify the equilibrium level of output using “marginal cost and marginal revenue” approach. Give reasons for your answer.

Or
Identify the three phases of the law of variable proportions. Give reasons.

Question 9:
Why is a typical possibility curve concave ? Explain. Use diagram.

Question 10:
Explain consumer’s equilibrium with the help of utility analysis when a consumer consumes
(i) only one good X.
(ii) two goods X and Y.

Question 11:
Distinguish between “movement” along the demand curve and with the help of diagrams.

Question 12:
The equilibrium market wage rate is ₹14,000 per month. The government finds it low and fixes minimum wage rate ₹18,000 per month. Examine the implications of this decision.
OR
Market for a good is in equilibrium. There is simultaneous “increase” in both demand and supply of that good. Explain its effect on price and quantity.

Section B : Macroeconomics

Question 13:
Goods purchased for the following purpose are final goods (Choose the correct alternative):
(a) For satisfaction of wants.
( b) For investment in assets of a firm.
(c) Both (a) and (b)
(d) None of the above

Question 14:
What is meant by real gross domestic product ?

Question 15:
Which one of the following is an indirect tax ? (Choose the correct alternative)
(a) Profit tax
(b) Wealth tax
(c) Customs duty
(d) Gift tax

Question 16:
Identify capital receipt of the government:
(a) Income tax
(b) Loan from public
(c) Fees and fines
(d) Interest and dividend

Question 17:
What is marginal propensity to consume ? How is it related to marginal propensity to save ?

Question 18:
In an economy 75 per cent of the increase in income is spent on consumption. Investment Is increased by ₹1,000 crores. Calculate :
(a) total increase in income
(b) total increase in consumption expenditure.
OR
Calculate Autonomous Consumption Expenditure from the following data about an economy which is in equilibrium :
National income = 500
Marginal propensity to save = 0.30
Investment expenditure = 100

Question 19:
Suppose a ban is imposed on consumption of liquor in the country. Examine its effects on (a) gross domestic product and (b) welfare.
OR
How do the negative externalities affect the welfare of the people ? Explain by taking an example.

Question 20:
Find national income :
                                                                                                                        (₹ in Crores)
(i) Wages and salaries                                                                                               1,000
(ii) Net current transfers to abroad                                                                           20
(iii) Net factor income paid to abroad                                                                       10
(iv) Profit                                                                                                                       400
(v) National debt interest                                                                                           120
(vi) Social security contributions by employers                                                    100
(vii) Current transfers from government                                                                 60
(viii) National income accruing to government                                                     150
(ix) Rent                                                                                                                         200
(x) Interest                                                                                                                     300
(xi) Royalty                                                                                                                     50

Question 21:
Distinguish between revenue receipts and capital receipts in a government budget. Give
examples.

Question 22:
Distinguish between the fixed exchange rate and flexible exchange rate. If exchange rate falls, explain its effects on exports and imports.

Question 23:
Why is central bank an apex bank of the country ? State any three points of distinction between a central bank and commercial banks.

Question 24:
Outline the steps required to be taken in deriving the consumption curve from the given saving curve. Use diagram.
OR
Explain national income equilibrium through aggregate demand and aggregate supply. Use diagram. Also explain the changes that take place in an economy when the economy is not in equilibrium.

Answers

Answer 1:
A good is considered a normal good when there is rise in its demand with rise in income and vice- vcrsa.

Answer 2:
(c) Both (a) and (b).

Answer 3:
Short-run production function may be defined as technological relationship between physical units of a variable factor of production and the output.

Answer 4:
(a) Perfect competition only.

Answer 5:
Following are the factors that affect the supply of a commodity :

1.  Prices of all other commodities – The supply of a commodity depends upon the prices of all other commodities. If prices of all other commodities rise, they will become relatively more attractive to produce and the supply of the commodity, the price of which has not changed will become less attractive and, therefore, its supply may fall.
2. Prices of factors of production – A rise in prices of factors of production of a commodity will make the production of that commodity less profitable. The supplies of other commodities will increase at the expense of the commodity which has experienced a large rise in costs.
3. State of technology – Technical advances based on new discoveries and innovations lower the cost of production resulting in more and more supplies of a commodity. With the change in technology, new products are supplied resulting in decline of supply of existing products.

Answer 6:
One of the features of oligopoly is that number of firms is small in oligopoly market. Following are the implications of few firms in an oligopoly :

1.  Each firm enjoys considerable monopoly power in the market. Each firm has the freedom to fix the price of the product.
2. There are barriers to the entry of new firms in the market.
3.  The feature of few firms makes the firms mutually interdependent. Firms adopt the policy of price rigidity. Firms try to avoid price competition and use other methods like advertising, better after sale service etc. to compete with each other.

OR

Price being rigid means that oligopolist firms are unwilling to change the price i.e., market price does not move freely in response to changes in demand. Once a price has been determined, a firm will avoid changing it.
If a firm in oligopoly market reduces its price, its rivals will feel drain on their customers and, consequently will follow this price cut. The ultimate result will be that there will not be a significant increase in the sales of the firm. If an oligopolist firm raises its price, its rivals may not follow it. Sales of the rivals will increase. As a result of price rise, the oligopolist firm will have lesser sales while its rivals’ sales will increase. Hence, an oligopolist firm will be extremely unwilling to change its price because neither a price increase nor a price reduction will be beneficial for the oligopolist firm.

Answer 7:
Average revenue is total revenue divided by the number of units sold i.e., revenue per unit sold. Thus,
AR = \(\frac { TR }{ Number of units sold }\)
Marginal revenue (MR) is the change in the total revenue resulting from the sale of an additional unit of a firm’s product.
MR = \(\frac { Change in total revenue }{ Chnage in units sold }\)
When a fimi is able to sell more quantity of output only by lowering the price, marginal revenue will always be less than average revenue.

Since total revenue increases at the diminishing rate, both AR and MR will have downward trend but the rate of fall in MR will be more than the rate of fall in AR.
In the adjoining diagram, we see that both AR and MR curves are falling. But marginal revenue curve slopes faster than the average revenue curve. The rate of decline of the marginal revenue is just double the rate of decline of the average revenue.

Answer 8:

Formulas used : TR = Output x Price
MR = TR_n – TR_{n -1}
The condition under MC – MR approach to achieve equilibrium are as follows :
(a) MC = MR
Marginal cost should be equal to marginal revenue at that output level.
(ib) MC should cut MR from below i.e., MC is rising
In the given situation the equilibrium level is achieved at output level of 3 units as it fulfils both the conditions mentioned above.

OR

• Increasing returns to factor
• Diminishing returns to factor
• Negative returns to factor

There are three phases of law of variable proportion i.e., increasing returns to factors, diminishing returns to factor and negative returns to factor.
Increasing returns to factors is a phase in which TP increases at increasing rate and MP also rises. This can be identified between variable input 1 and 2 where MP rises from 3 to 4 units.
Diminishing returns to factors is a phase in which TP increases at diminishing rate and MP falls but remains positive from unit 2 to 4 it can be observed that MP is falling but is positive.
Negative returns to factor is a phase in which TP falls and MP becomes negative. From unit 4 to 5 it can be observed that MP becomes negative.

Answer 9:
A production possibility curve shows the various combinations of two goods that can be produced by utilising all the resources and technology fully and efficiently.
Production possibility curve is concave to the origin because of increasing marginal opportunity cost or marginal rate of transformation.

The increasing marginal opportunity’ cost means that for additional unit of a good, the sacrifice of units of other good goes on increasing. Since the sacrifice of units of other good goes on decreasing, production possibilities curve would be concave to the origin. This behaviour is based on the assumption that all resources are not equally efficient in production of all goods. As more of ofte good is produced, less efficient resources have to be transferred to the production of the other good which raises marginal cost i.e., marginal rate of transformation (MRT). If the sacrifice of units of other good is constant i.e., all resources are presumed to be equally efficient, production possibility curve would be a straight line.

Answer 10:
Consumer’s equilibrium is the situation under which a consumer gets maximum satisfaction. There are two cases :
(i) In case of one good – In case of a single good, the condition of consumer’s equilibrium is that the marginal utility in term of money is equal to the price. Thus,
\(\frac { Marginal Utility of a Product }{ Marginal Utility of a Rupee }\)  = Its Price
Here, a consumer should purchase 4 units of good X because the above condition is satisfied at this point.
Thus, \(\frac { 6 }{ 1 }\)  = 6
If the consumer purchases less than 4 units, there is scope of increasing satisfaction (utility) by purchasing more. If the consumer purchases more than 4 units, there is scope of increasing satisfaction (utility) by purchasing less because marginal utility is less than the price.
(ii) In case of two goods – In case of two goods, consumer’s equilibrium is attained when he spends his income in such a way that marginal utilities of both the goods are same assuming that price of each good is the same. Thus,
MUx = MUy
Suppose, Vaani is a consumer with ₹ 50. She wants to spend on eatables (x) and soft drinks (y). Price of one unit of each good is ₹10. Her utitlity schedule of two goods is as under:

For equilibrium, Vaani will spend first ₹ 10 on eatables, second ₹ 10 on soft drinks, third ₹ 10 on eatables, fourth ₹ 10 on soft drinks and last ₹ 10 on eatables. In this way, Vaani gets the utility of 390. If Vaani spends her income in any other way, total utility will be less than 390.
ff prices of two goods are different, the condition of consumer’s equilibrium will be as under :

Answer 11:
Movement along the demand curve represents a change in quantity demanded of a commodity because of a change in its price. On the other hand, shift of the demand curve represents a change in quantity demanded of a commodity because of change in factors other than price viz., change in income, change in tastes, change in the prices of related goods.
Adjoining diagram shows movement along the demand curve.

The diagram shows that when price falls from OP to OP₁, demand rises from OQ to OQ₁, and there is a rightward movement along the given demand curve, from point A to point B. When price rises from OP to OP₂, demand falls from OQ to OQ₂ and there is a leftward movement along the given demand curve.
Adjoining diagram shows shift of the demand curve.

In the diagram, price is OP and the original demand is OQ. At the same price, demand rises to OQ₁ the point showing OQ₁ demand at OP price will be on a new demand curve which is to the right of original demand curve. At the same price, demand may fall to OQ₂ which is on new demand curve D₂D₂.

Answer 12:
When the government fixes minimum wage rate as ₹18,000 per month against the equilibrium wage rate of ₹ 14,000, it is a case of price floor. Price floor results in a situation of excess supply. Such a step is taken to protect the interests of the labourers who are assured of a given wage rate of ₹ 18,000. It may be shown in diagram.

In the diagram, equilibrium wage rate of ₹ 14,000 is OP. The government fixes the floor price wage rate of ₹ 18,000 at OP₁ . At this wage rate, demand decreases and supply increases. As a result, there is surplus of labour equal to MN. To avoid the problem of surplus, the government may have to purchase the labour.

When there is simultaneous increase in both demand and supply of a good, there may be following situations :
(i) If increase in demand and supply both are equal, there will be no change in the equilibrium price but equilibrium quantity will increase.
In the diagram (a), demand and supply both increase in same proportion. As a result, price remains same at OP but quantity increases from OQ to OQ₁.
(ii) If increase in demand is more than increase in supply, both equilibrium price as well as quantity will increase.
In the diagram (b), the proportionate increase in demand is more than proportionate increase in supply. As a result, price increases from OP to OP₁ and quantity increases from OQ to OQ₁.
(iii) If increase in demand is less than the increase in supply, equilibrium price will decline and equilibrium quantity will increase.
In the diagram (c), the proportionate increase in demand is less than proportionate increase in supply. As a result, price decreases from OP to OP₁ but quantity increases from OQ to OQ₁.

Answer 13:
(c) Both (a) and (b).

Answer 14:
Real gross domestic product is gross domestic product at constant prices i.e., prices prevailing in the base year.

Answer 15:
(c) Customs duty

Answer 16:
(b) Loan from public.

Answer 17:
Marginal propensity to consume (MPC) may be defined as the proportion of income that is consumed out of additional income. Thus,
MPC = \(\frac { \Delta C }{ \Delta Y }\)
In other words, marginal propensity to consume refers to the ratio of change in consumption to change in income.
There is direct relationship between marginal propensity to consume and marginal propensity to save. Change in income is either consumed or saved. Hence, marginal propensity to consume and marginal propensity to save will always be equal to one. Thus,
MPC + MPS = 1.

Answer 18:

Since MPC + MPS = 1
MPC = 1 – MPS MPC = 1 – 0.30 = 0.70
A-40
National Income (Y) = Consumption (C) + Investment (I)
Consumption (C) = Y -1
= 500 – 100 = 400
Consumption (C) = Autonomous Consumption + (National Income x MPC)
Autonomous consumption = C – (Y x MPC)
= 400 – (500 x 0.70)
= 400 – 350 = 50

Answer 19:
Following are the effects of ban on consumption of liquor in the country :
(i) Gross Domestic Product – If a ban is imposed on consumption of liquor, gross domestic product will be adversely affected atleast in short run. Alcohol industry is one of the biggest industries. It would result in problem of unemployment and decline in tourism. The sale of liquor contributes to the economy through tax to the government.
(ii) Welfare – If a ban is imposed on consumption of liquor, welfare of the country would improve. A number of social problems originate from the consumption of liquor. With a ban in consumption of liquor, there would be a decline in the number of accidents, rapes and murders.

Negative externalities are the ones which lead to harms to the social welfare in the process of production. Negative externalities include the following :

1. Traffic jams.
2. Pollution from the factories.
3.  Pollution from automobiles.

Smoke out of chimneys of factories affects the health of the people by causing various diseases like asthama. As a result people will not be able to work with full zeal and enjoy the consumption of goods and

Answer 20:
National Income = Wages and salaries + Social security contributions by employers + Rent + Interest + Royalty + Profit – Net factor income paid to abroad
= 1,000 + 100 + 200 + 300 + 50 + 400 – 10
= 2,050 – 10
= ₹2,040 Crore

Answer 21:
Distinction between revenue receipts and capital receipts :

Answer 22:
Following table shows distinction between fixed and flexible foreign exchange rate :

If exchange rate falls, there would be increase in value of domestic currency in terms of foreign currency. Such a situation is known as appreciation of domestic currency. Appreciation makes domestic goods dearer (costly) for the foreigners and consequently exports may fall. Appreciation makes foreign goods cheaper for the people of domestic country and consequently imports may rise.

Answer 23:
A central bank is an apex bank of the country because it regulates the money suppl/ with a view to achieve economic stability. A central bank controls the entire banking system by controlling their operations through credit control measures such as bank rate, repo rate, reverse repo rate, cash reserve ratio etc.

Following table shows the distinction between a commercial bank and a central bank :

Answer 24:
Following are the steps required to be taken in deriving the consumption curve from the given saving curve:
(i) SS₁ is a saving curve for an economy.
(ii) Now we shall draw income curve from the point of origin which is 45° angled curve.
(iii) At the point of origin O, there is negative saving. The negative saving equal to OS will give us point of origin of consumption curve CC₁ at C. It is to be noted that OC = OS.
(iv) At point A, savings cuts x-axis at A where savings will be zero. It means that at point A₁ consumption curve will intersect income curve.
(v) The difference between x-axis and saving curve will be difference between Income curve and Consumption curve.
(vi) By joining C, A₁ and C₁, we can derive consumption curve CC₁.
It is shown in the given figure.

OR

Equilibrium level of national income means that level of national income where the aggregate demand is equal to the aggregate supply.
If aggregate demand is less than aggregate supply, there will be a tendency of decrease in production and national income. Similarly, if the aggregate demand is more than the aggregate supply there will be a tendency of increase in production and national income. We can illustrate our view point with the help of adjoining diagram.

In the diagram equilibrium of national income is at point E where equilibrium income is OY.
When the economy is not in equilibrium, there may be either of the following situation.

1.  Excess Demand (AD > AS) – When aggregate demand is more than aggregate supply, it will lead to fall in inventories with the producers. The producers will produce more to reach the desired level of inventories. This Will raise aggregate supply till it becomes equal to aggregate demand.
2. Deficient Demand (AD < AS) – When aggregate demand is less than aggregate supply, it will lead to build-up of inventories of unsold goods with the producers. The producers will cut back the production to reduce the unsold inventories to the desired level. This will continue until aggregate demand and aggregate supply are equal.

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